Singapore must be financially vigilant: MAS

According to MAS' 2012 Financial Stability Review, Singapore’s economy and financial system have been resilient through the GFC (Global Financial Crisis).

Here's more from MAS:

Growth has slowed markedly but is still expected to be positive this year and next. Financial markets have remained stable despite financial fragilities and persistent macroeconomic uncertainties globally.

Concerns over liquidity and counterparty credit risks have been muted in the domestic interbank market, while confidence in Singapore Government Securities (SGS) remains high.

Interest rates in Singapore have remained low for a prolonged period of time. This is in line with global trends, which are expected to continue as policymakers in advanced countries have committed to keep monetary policy accommodative over the medium term.

There is therefore a risk that expectations of low interest rates for the foreseeable future will become entrenched.

The need for vigilance is clear.

It is notable that while overall bank loan growth has decelerated since the turn of the year, non-bank loan growth has remained firm, underpinned by the growth of both corporate and household loans in the Domestic Banking Unit (DBU).

The Singapore banking system’s funding profiles and asset quality remain sound, and local banking groups have continued to be well capitalised. These strengths have enabled the banking system’s overall loan base to continue growing.

However, if economic conditions worsen or interest rates rise from current low levels, bank loan quality could deteriorate substantially.

Banks should continue to manage their risks, including maintaining prudent underwriting standards, pricing risks appropriately and managing credit concentration risks effectively. Banks’ business strategies should be commensurate with their risk appetite and risk management controls.

While Singapore Dollar (SGD) funding for domestic lending remains adequate, non-SGD funding risk should be closely monitored as non-SGD loan growth has outpaced non-SGD deposit growth over the past year